Multi-product firm price and variety response to firm-specific cost shocks

Alexis Antoniades, Sofronis Clerides and Mingzhi (Jimmy) Xu

International Journal of Industrial Organization, 2023, vol. 90, issue C

Abstract: A large literature studies how prices respond to changes in market conditions. More recent work examines firm adjustments along the product quality and variety channels. We present a theoretical model of heterogeneous, multi-product firms to characterize the response of firms to idiosyncratic cost shocks along the price and variety channels. The model delivers rich implications and interesting trade-offs between the two channels. Large firms respond to a cost increase by raising both prices and scope. Relative to smaller firms, they respond more through scope than prices. Availability of the variety channel eases pressures to absorb cost changes and increases pass-through.

Keywords: Multi-product firms; Cost shock; Pass-through (search for similar items in EconPapers)
JEL-codes: D4 F1 L1 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:90:y:2023:i:c:s0167718723000656

DOI: 10.1016/j.ijindorg.2023.102984

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